nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒07‒13
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tacit Collusion, Firm Asymmetries and Numbers: Evidence from EC Merger Cases By Stephen Davies; Matthew Olczak; Heather Coles
  2. Efficiency and Price Effects of Horizontal Bank Mergers By John K. Ashton; Khac Pham
  3. Bargaining over Remedies in Merger Regulation By Bruce Lyons; Andrei Medvedev
  4. Optimal Patent Breadth: Quantifying the Effects of Increasing Patent Breadth By Chu, Angus C.
  5. Survey of Public Attitudes to Price-Fixing and Cartel Enforcement in Britain By Andreas Stephan
  6. Exclusionary Discounts By Janusz Ordover; Greg Shaffer

  1. By: Stephen Davies (Centre for Competition Policy, University of East Anglia); Matthew Olczak (Centre for Competition Policy, University of East Anglia); Heather Coles
    Abstract: The purpose of this paper is to identify empirically the implicit structural model, especially the roles of size asymmetries and concentration, used by the European Commission to identify mergers with coordinated effects (i.e. collective dominance). Apart from its obvious policy-relevance, the paper is designed to shed empirical light on the condition under which tacit collusion is most likely. We construct a database relating to 62 candidate mergers and find that, in the eyes of the Commission, tacit collusion in this context virtually never involves more than two firms and requires close symmetry in the market shares of the two firms.
    Keywords: Tacit collusion, collective dominance, coordinated effects, European mergers, asymmetries
    JEL: L13 L41
    Date: 2007–03
  2. By: John K. Ashton (Centre for Competition Policy, University of East Anglia); Khac Pham (Centre for Competition Policy, University of East Anglia)
    Abstract: This study provides an empirical assessment of the efficiency and interest rate changes occurring during 61 UK retail bank mergers. Key findings of the work include the general efficiency enhancing influence of UK bank mergers and the limited effect of merger on retail interest rates. Furthermore, different banking products appear to be influenced differently by mergers. It is proposed that future assessments of bank competition and mergers require an accommodation of different types of bank customer.
    Keywords: Retail banking, mergers, efficiency and price effects
    JEL: G14 G21
    Date: 2007–06
  3. By: Bruce Lyons (Centre for Competition Policy, University of East Anglia); Andrei Medvedev (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper provides a first attempt to understand how outcomes are determined by the standard institutions of merger control. In particular, we focus on the internationally standard 2-phase investigation structure and remedy negotiations of the form practiced by the EC. We find that there are inherent biases in remedy outcomes, and identifiable circumstances where offers will be excessive and where they will be deficient. In particular, we find clear circumstances in which firms offer excessive remedies, which goes against a possible intuition that firms should expect to extract an information rent for possessing superior information about competition in the market.
    Keywords: Merger regulation, merger remedies, competition policy, bargaining
    JEL: K21 L41 L51
    Date: 2007–02
  4. By: Chu, Angus C.
    Abstract: In a generalized quality-ladder growth model, this paper firstly derives the optimal patent breadth and the socially optimal profit-sharing arrangement between patentholders. In this general-equilibrium setting, it identifies and derives a dynamic distortion of markup pricing on capital accumulation that has been neglected by previous studies on patent policy. Then, it quantitatively evaluates the effects of eliminating blocking patent and increasing patent breadth, and this exercise suggests a number of findings. Firstly, the market economy underinvests in R&D so long as a non-negligible fraction of long-run TFP growth is driven by R&D. Secondly, increasing patent breadth may be an effective solution to R&D underinvestment. The resulting effect on long-run consumption can be substantial because the harmful distortionary effects are relatively insignificant. However, the damaging effect of blocking patent arising from suboptimal profit-sharing arrangements between patentholders can be quantitatively significant. Finally, it considers the effect on consumption during the transition dynamics.
    Keywords: endogenous growth; intellectual property rights; patent breadth; R&D
    JEL: O34 O31
    Date: 2007–07
  5. By: Andreas Stephan (Centre for Competition Policy, University of East Anglia)
    Abstract: The paper reports on results from a public survey on attitudes to collusion and cartel enforcement in Britain. Respondents demonstrate an understanding that price-fixing is harmful and should be punished. While there is strong support for high corporate fines and naming and shaming, only 1 in 10 Britons think individuals responsible should be imprisoned. Weak perceptions of the severity of price-fixing are confirmed by only 6 in 10 people considering such practices to be dishonest. Sex and age stronly influence attitudes. Education and newspaper readership have less of an effect, indicating poor information dissemination. Only 20% would report their employer's involvement in price-fixing without guarantees of anonymity and/or a reward; 14% would not report at all for fear of consequences. Public opinion is divided as to whether leniency programmes are justifiable. Respondents consider public enforcement to be more important than compensating parties injured by cartels.
    Keywords: Cartels, public survey, enforcement, UK cartel offence, leniency, private enforcement, competition law
    JEL: L13 L42 K21 L41
    Date: 2007–05
  6. By: Janusz Ordover (New York University and Competition Policy Associates); Greg Shaffer (Simon School of Business, University of Rochester)
    Abstract: We consider a two-period model with two sellers and one buyer in which the efficient outcome calls for the buyer to purchase one unit from each seller in each period. We show that when the buyer's valuations between periods are linked by switching costs and at least one seller is financially constrained, there are plausible conditions under which exclusion arises as the unique equilibrium outcome (the buyer buys both units from the same seller). The exclusionary equilibria are supported by price-quantity offers in which the excluding seller offeres its second unit at a price that is below its marginal cost of production. In some cases, the price of this second unit is negative. Our findings contribute to the literatures on exclusive dealing, bundling, and loyalty rebates/payments.
    Keywords: Exclusive dealing, bundling, market-share discounts, all-units discounts
    JEL: L13 L41 L42
    Date: 2007–05

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